G-EPS project faces further delay?

The P244-million Government Electronic Procurement System (G-EPS) may face an even longer delay as losing bidder Ayala Systems Technology Inc. (ASTI) is poised to file a legal challenge against the project’s proponents.

ASTI president Rizalino Gerardo Favila Jr. said in a press conference last Wednesday that his company is considering legal action against the Department of Budget and Management (DBM) unless it answers satisfactorily four major issues ASTI has raised regarding the bidding of the G-EPS project.

Favila said serious questions on the propriety of the bid process are enough to declare a failed bid.

The option to sue DBM was made more likely by ASTI’s dissatisfaction with a May 22 letter from the DBM in response to Favila’s two earlier letters that sought clarifications on ITBF Phils.’ eligibility, the location of the G-EPS mirror site, transparency of the scoring, and the integrity of the bidding process.

International Trade and Banking Facility, or ITBF Phils., represents a consortium of four companies that won the five-year G-EPS contract. These companies are East West Electronic Trade Centre Ltd. (EWETC), Infomediary Phils. Inc., Right Computer Systems Inc. and Asia Business Consultants Inc.

Filipino or not?

The DBM’s letter, which came four months after ASTI’s Jan. 16 letter, ignored the eligibility issues, which, Favila said, are the most important for them. He has challenged the DBM to prove the relationship of ITBF Phils. with its four venture partners, specifically on the 60-40 ownership structure that the law mandates.

"We feel it is a very reasonable request because we knew all along that the four companies (were the ones) that were deemed eligible to bid. ITBF is the name of the consortium and it is not incorporated," Favila said.

He said the eligibility rules state that a joint venture must have 60-percent Filipino ownership. "If a joint venture is not incorporated, how do you now determine that it is 60-percent Filipino-owned?" he asked.

Favila argued that requiring the ITBF to register later with the Securities and Exchange Commission would not address the issue. The DBM, however, states that doing so does not mean it is changing the bid rules nor is the government requiring ITBF to change its structure.

"To further protect the government, there is nothing to prevent it from requiring a winning bidder to incorporate for the sake of contract implementation (which is already different from the bidding itself)," said Budget and Management Secretary Emilia Boncodin.

"Other bidders, in fact, submitted bids in the form of a joint venture or consortium, just like the ITBF. These joint ventures are specific to the project and for this reason, you won’t be able to find a record of them in the SEC, which doesn’t require registration of joint ventures that are not incorporated," she said.

Boncodin added: "This is also the reason why SEC registration was not required in the bid rules and this was explained to everyone during the pre-bid conference. However, each of the members of the joint venture should be registered with the SEC. EWETC is a foreign member (of the consortium) that is duly registered to do business in the Philippines."

Thomas Price, president of EWETC Phils., a subsidiary of EWETC Hong Kong, said ITBF Phils. is 40-percent owned by the Hong Kong office.

"Our joint venture agreement has been signed by all four member-companies. As part of the agreement, if we’re given the contract, then we will form a corporation and that should be the one registered with the SEC," Price told NetWorks.

Favila, however, said, "According to legal opinion, the only way to determine if a consortium meets the requirement for 60-percent Filipino ownership is to determine share ownership. This means that the consortium must be incorporated."

Because the DBM allowed the ITBF to qualify for the bid, Favila asked how the government agency established that ITBF is indeed 60-percent Filipino-owned.

Net financial contracting capacity

Still on the eligibility issue, Favila questioned how an unincorporated consortium could pass the Net Financial Contracting Capacity (NFCC) requirement when public documents from the SEC show only Right Computer Systems is in the black.

The DBM’s formula to compute the NFCC is current assets minus current liabilities equals net working capital multiplied by 20, which is an arbitrary number, minus the value of outstanding work or projects.

Simply put, a company’s NFCC should be able to cover the original P250-million ceiling cost of implementing the G-EPS.

"The NFCC of EWETC, Infomediary and ABC are all negative; only RCS is positive," said Favila. "If we combine their NFCCs, it would be less than P150 million, so the only way they could get around that is to treat the negatives as zero."

Price, for his part, said what they submitted to the DBM was the consolidated financial statements of EWETC here and abroad.

"I hate to pop their bubbles. When we bid we used our consolidated financials, including Hong Kong, Saudi and US…. The requirement was for corporate financials. If he (Favila) only looked at the balance sheet of the Philippine branch, then he’s right. But we have more than adequate (resources) as a company, certainly more than what is necessary," Price said.

Track record

Another eligibility issue Favila raised zeroes in on EWETC’s track record. Citing EWETC’s negative financial documents with the SEC, Favila said it simply begs the question: "If there’s a track record, why is the revenue zero?"

Price said they submitted to the DBM original copies of 86 notarized contracts that the EWETC executed with Philippine companies, most of which, if not all, involve e-procurement. He said they have also furnished the DBM with details of their projects abroad that used the ITBF software, which they would also use for the G-EPS.

Price said most of their contracts are in the pre-operating stage so they are still amortizing the development costs as they build the systems, thus, they are not earning nor recording any revenues yet.

One of these projects is for the Philippine National Oil Co. (PNOC), the memorandum of agreement of which was signed before the G-EPS bid was released, Price said.

Favila, however, was not convinced. He said a track record should represent finished projects and that based on the bid’s terms of reference, a company should have completed at least one project within the past year.

Price said well before the G-EPS bidding, they had also executed a project with the Philippine Association of Smelting and Refining Co. (PASAR).

"I would be happy to compare our record and knowledge of e-procurement with everybody else. We have the technology created homegrown and not by foreign companies," Price said.

The ITBF software is yet another bone of contention. An American by the name of David Hite has accused Price of stealing the idea behind the ITBF software from their former company, Veronex Technologies Inc., in the US.

Price denied this, saying that ITBF Phils. developed the software from scratch here in Manila, which happens to be the development center of EWETC since 1998.

Mirror site

ASTI also has complaints about ITBF’s proposal to locate the G-EPS mirror or back-up site offshore, in California. ASTI proposed that both the production and mirror sites be located in the country for the sake of data security and to avoid conflicts in jurisdiction and choice of law.

"It appears, however, that the evaluating team failed to understand the disadvantages of locating a mirror site abroad," Favila said, explaining that this would make it impossible for the government to conduct surprise inspections to ensure data security or pursue measures to take possession of the site.

In its letter to ASTI, the DBM said that under the proposed contract, the department has the unilateral authority to require the contractor to transfer the mirror site to a new location without added cost.

Favila said such a "new provision" is tantamount to an admission that the mirror site should not be located abroad. While he said immaterial changes in the requirements are acceptable, the "unilateral authority" that makes the transfer of mirror site as an option is not.

Price reiterated that the offshore location of the mirror site is optional, and that they have not received any specific order from the DBM to proceed in locating it abroad.

‘Stonewalling’

Favila accused the DBM of "stonewalling" and said he now considers a lawsuit as an option.

"Unless the questions raised are answered squarely, how can the bidders and the IT community be convinced that the bid was transparent? As far as we are concerned, it has utterly failed the tests of transparency and fair play," Favila said.

In defense, Boncodin said the issues ASTI raised concern policy and thus, have to be considered by the Government Procurement Policy Board before any decision is made.

"That is how tedious and strict the entire process is. In fact, if we were to be strict about it, ASTI did not file any request for reconsideration with the IABAC in the proper format," Boncodin said.

In the interest of transparency, Favila also requested the DBM to publish all the scores of all bidders. DBM declined, citing it might expose the evaluators or judges to harassment. Favila later said he is not out to change the scores or to get the names of the judges.

"The technical evaluation is a highly subjective exercise and we accept that. This could be another policy question but this has ramifications in future IT bids because here the price is not a consideration, but on technical merits. So, at a minimum, they should show that the scoring was transparent, independent and fair," he said.

The DBM stands firm in its decision to release only the total scores, but not how the individual members of the evaluating team scored, in accordance with Executive Order 40.

"We maintain that we had a valid bidding for the G-EPS," Boncodin said.

Favila said even Congress has started to take interest in the conduct of the G-EPS project.